USD Index - Falling wedge. A potential false break lower

As can be seen in the weekly chart above, the USD index has been forming a falling wedge which broke to the downside over the last 3 weeks. Interim support has been found,pushing back into the wedge and now needs to be maintained in order to leave a bullish false break lower. Failure to hold here will likely lead to a break towards last years low at 70.698. However, if maintained and a break of the wedge resistance is achieved, this will confirm the false break lower and will be a signal of USD strength ahead.

So, we are at a pivotal point in the market. Will the USD strengthen and likely take equity markets down with it, or are we about to see an extension of recent weakness in the USD associated with further strength in already overvalued equities? I know which camp I am in. Is a larger multi-month/year reversal pattern forming here? What say you?

GBPUSD - How weakness in GBPUSD effects EURGBP

The reversal pattern that I mentioned in my post below has now been triggered. I think we are heading to the 1.5300 region initially. If and when we get there I think it will be perfectly feasible that 1.3500 will be mentioned again by so called experts. Prices make opinions, not the other way round.

One thing to note here is that when cable is weak, EURGBP tends to rise. I think there is every chance that we head back to .9805 in EURGBP and possibly higher. In saying this I assume that there are no balance sheet surprises out of the Eurozone banking system and that Eurozone investement grade credit spreads do not deteriorate relative to their UK equivalents. So ask yourself this; if EURGBP heads to parity, where does that leave cable? Above is a chart of Cable with EURGBP below it, so that you can see the general inverse relationship. Periods where this is not the case are short lived.

I am certain that the Eurozone banking system is in a complete mess, but for some reason Mr Market has decided to ignore this. Maybe if trade begins to contract again and Germany feels the pain this will resurface, but in the meantime there is no point arguing with the market as this has the potential to be an explosive one. A good article about global money supply which ties in with growth and debt deflation can be read here. Enjoy!

NZDUSD - Meets extension target and leaves a possible false break higher

As can be seen in the chart above NZDUSD just like AUDUSD has hit a major extension target and in doing so has broken through the resistance of a rising channel. This may have left a false break higher. I now favour a return to the .6900 region and potentially lower. One step at a time. The false break higher will be confirmed on a break below .6900. This kind of set up, if triggered, typically leads to sharp losses.

EURAUD - Follow up chart

Following on from my post below, here is the chart. As can be seen the pair has hit a major extension target and is also exhibiting a multi week bullish divergence. Coupled with AUDUSD having hit a major extension target I would favour a bounce higher towards 1.8098 over the coming weeks. As before, below 1.6587 weakens bulls.

AUDUSD - Possible false break higher.

Well, all I can do is repeat what I mentioned in the update below about USD sentiment. I feel the same way about the AUD as I did when I wrote an earlier post in terms of my conviction and intuition, except this time I have the inclination to be a bear. As some of you may have gathered I am a natural contrarian. AUDUSD has hit a major extension level at .8700 and has formed a rising wedge, which on a weekly chart has been broken to the upside. This break has failed to gain momentum and has also failed to close above .8700 on a weekly basis. All I can say is watch this one and also NZDUSD. These commodity currencies have gone a long way in a short time. If the global economy does not come roaring back then these currencies are going to get trounced. Couple this with the fact that EURAUD is technically set up for a recovery (more on that later) and GBPAUD has hit a 20 year low, this is one currency that needs to take a breather. Look out to see if AUDUSD leaves a false break higher next week. If so, this could be an early indication that there will be swift losses ahead. In my opinion any further rises beyond the .8700 region will just make the eventual fall even more tasty then it is currently set up to be.

GBPUSD - Possible reversal pattern forming

So I am finally getting back into the swing of things after my holiday and am glad to see that one of my earlier recommendations is making the right noises. As per my earlier post, I see GBPUSD as one of the best sells if you are getting bullish on the USD, which I am. Sentiment is rediculously skewed towards US dollar bears and in a debt deflationary scenario the USD will come out on top. I see no reason why we cannot head down to the 1.5500 region initially in GBPUSD and then re-assess there. 1.3500, as I mentioned before, is not as low a probability as you may believe. On the weekly chart above (click on image for a larger picture)there is a potential reversal pattern forming which will be triggered on a push under 1.6113. I would suggest getting short on pullbacks now but those who love their technicals and like to play it safe (and ultimately probably sit through more pain) may want to sell on the break. Good luck.

EURAUD - Recovery higher likely

EURAUD has hit a major extension target recently and is also exhibiting a multi week MACD bull divergence. I will try to upload a chart tomorrow or over the weekend. I just wanted to get the message across that I think that it is a great long with stops below 1.6587 (01 Jul 08 high). All will become clear when you see the charts. My reasoning here is that the so called global recovery has got way ahead of itself. Folk are talking of rate hikes in Australia. If signs emerge that all is not well the currencies that will get the biggest kicking are the commodity currencies and in particular AUDUSD And NZDUSD. To play it safe I have chosen this trade as I see a good technical set up too. Good luck if you have a go. Trade has potential for 1.8104 (13 Jul high) initially. this is one of the rare occasions where I see no harm in simply hitting market.

Idle container ships - My very own picture

Following on from my post below I would like to direct readers to Michael Shedlock's piece on container ships here. Also check out my very own photo from souh east asia....

NSEI vs p/e ratio - An update

I have had a few requests for the chart above. We are now back at levels in the p/e that in 2004 heralded a pullback. I think the Indian market is getting a tad pricey...

Idle container ships - A warning sign.

A small observation I made while eating sea food on the east coast of Singapore was the number of idle container ships that are anchored off the coast of Singapore. I was reliably informed by those that I ate with that if you can see the pink underbelly of the ships; it indicated that they have no cargo and are likely idle. I saw a lot of pink. Infact every time I looked out to sea, no matter which coast I was on, I saw a lot of pink. This is surely a warning sign that the global economy is still sluggish and that the inventory re-build is nearing completion.

I have since shared e-mails with a friend in the shipping industry in Singapore who tells me that the industry is still not in a good shape. Make of it what you will, but to my mind it does not bode well.....

Back from SE asia

I have been away on holiday in SE asia and have returned to find myself naturally waking up at 4 in the morning, oh dear. I will try to update over the weekend but in any case I can already say that I remain a USD bull and an equities bear. Happy trading....